Saturday, September 26, 2009

"Now about that bonus... you'll have to earn it"

Oh my. That's the word from the G-20

Executive bonuses would be scaled back, reviewed annually, and decoupled from short-term share price movements under a bold plan presented to world leaders meeting in Pittsburgh with the backing of Australia's Treasurer Wayne Swan.

Speaking ahead of today's release of the 19-point plan prepared by a Group of 20's Financial Stability Board with input from Australia Mr Swan said it displayed a "steely determination" to stamp out pay packages that rewarded excessive risk taking and did not reward long-term value creation.

Specific Australian proposals will be released on Wednesday when Productivity Commissioners Allan Fels, Robert Fitzgerald and Gary Banks unveil the preliminary findings of their six-month review of executive salaries.

The Financial Stability Board's proposals which would apply only to the finance sector would require at least 40 per cent of each executive's bonus to be deferred over a number of years, rising to 60 per cent for the bonuses of the most senior executives...

The deferral period should be at least three years with at least half paid in the form of shares or share-like instruments rather than cash.

Where cash is paid it should be handed over gradually, with unpaid portions "clawed back" when performance turns down.

No part of any bonus should be automatic except for new employees for whom an exception could be made in the first year.

Each firm would be required to review its entire system of executive payments each year and submit the results to authorities or disclose them publicly.

Existing contracts would be reopened and the termination provisions only kept if they did not "reward failure".

The draft principles are stronger than expected and may defuse an expected showdown between French President Nicolas Sarkozy who wanted harsh caps on executive salaries and other leaders who wanted a more hands-off approach.

Importantly the Board has told the G-20 leaders the draft principles are just the first step ,and that it will propose others in March next year.

Mr Swan said the rules would form an international framework for laws that each G-20 member would have to draw up locally.

"This goes to the very core of some of the issues in the financial system that we've lived with the consequences of over the past six to nine months," he told a Pittsburgh news conference.

Published in today's SMH and Age

Graphic: New Mexico Independent